EUR/GBP made a buy forex signal when it bounced off the bottom of the descending trend channel on its daily time frame. The pair has been selling off pretty aggressively on expectations of further ECB easing and hawkish monetary policy bias from the BOE, but it appears that the latest set of data might trigger a reversal or at least a quick rally.
The newly released UK claimant count change report for April showed a lower than expected drop in unemployment but was enough to push the jobless rate down from 6.9% to 6.8%. Traders were disappointed to find out that the data was not as strong as expected, lowering the odds of a rate hike from the BOE later this year or early next year.
EUR/GBP Forex Signal
A strong bounce from the bottom of the channel is not likely to last until the channel resistance because traders are still counting on the ECB to ease monetary policy one way or another. In the latest turn of events, the German central bank expressed its backing for ECB stimulus as a means of fighting off low inflation.
In their previous rate statement, the ECB already expressed its preference to ease monetary policy in June. However, this still depends on how inflation forecasts for 2016 turn out. These figures are set to be released in early June and would likely dictate how the actual ECB monetary policy would turn out.
Downgraded inflation forecasts would likely result to negative deposit rates from the ECB or an extension of their loans offered to banks. Further LTRO (long-term refinancing operations) are also on the table. An actual announcement of easing might lead to a deeper selloff for the euro and possibly a breakdown of the descending trend channel support on this daily time frame, a strong forex signal to short.
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